Methods of Controlling Monopoly
1. Legislative Method: Government can control monopolies by legal actions. Anti-monopoly legislation has been enacted to check the growth of monopoly. In India, the Monopolies and Restrictive Trade Practices Act was passed in 1969. The objective of this Act is to prevent the unwanted growth of private monopolies and concentration of economic power in the hands of a small number of individuals and families.
2. Controlling Price and Output: This method can be applied in the case of natural monopolies. Government would fix either price or output or both.
Taxation: Taxation is another method by which the monopolistic power can be prevented or restricted. Government can impose a lump-sum tax on a monopoly firm, irrespective of its level of output. Consequently, its total profit will fall.
Nationalisation: Nationalising big companies is one of the solutions. Government may take over such monopolistic companies, which are exploiting the consumers.
Consumer's Association: The growth of monopoly power can also be controlled by encouraging the formation of consumers associations to improve the bargaining power of consumers.
Characteristics of Monopoly
1. Single Seller: There is only one seller; he can control either price or supply of his product. But he cannot control demand for the product, as there are many buyers.
2. No close Substitutes: There are no close substitutes for the product. The buyers have no alternatives or choice. Either they have to buy the product or go without it.
3. Price: The monopolist has control over the supply so as to increase the price. Sometimes he may adopt price discrimination. He may fix different prices for different sets of consumers. A monopolist can either fix the price or quantity of output; but he cannot do both, at the same time.
4. No Entry: There is no freedom to other producers to enter the market as the monopolist is enjoying monopoly power. There are strong barriers for new firms to enter. There are legal, technological, economic and natural obstacles, which may block the entry of new producers.
5. Firm and Industry: Under monopoly, there is no difference between a firm and an industry. As there is only one firm, that single firm constitutes the whole industry. .
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